Author Topic: Mid Year Conversion from FSA to HSA (HDHP) Plan  (Read 265 times)

shguy

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Mid Year Conversion from FSA to HSA (HDHP) Plan
« on: December 20, 2018, 10:17:33 AM »
First post on the forum. Y'all don't beat me up too bad.

From January to September I was on my wife's HMO insurance plan. Her yearly term runs October 1st to September 30. On October 1st, I dropped off her plan and enrolled in an HSA eligible plan through my employer. I had a FSA account from January to September that was suspended (balance sent to zero) when I enrolled in the HDHP plan. Over the past two months I have been battling with our benefits provider to establish an HSA account on my behalf. Two weeks ago they finally said I was eligible to put funds in an HSA account (I maxed it out) and last night I got a call that said they were mistaken and the IRS will not allow you to contribute to a FSA and HSA account in the same year (so I may have to get a refund). I cannot find any information on the IRS website that documents this and the benefit provider has not given me the form or publication number either.

Questions
1. Does FSA enrollment follow a yearly pattern or monthly?
2. If the FSA is yearly, can my funds be suspended for a change in coverage?
3. Can the FSA be converted from a standard FSA to a limited purpose FSA with a qualifying life event?
4. Has anyone else ever converted from a standard health plan mid-year to a HDHP plan? If so please help!

reeshau

  • Bristles
  • ***
  • Posts: 308
  • Location: Dublin, Ireland
Re: Mid Year Conversion from FSA to HSA (HDHP) Plan
« Reply #1 on: December 20, 2018, 01:37:51 PM »
It's not exactly your situation, but I can say that for the past several years I have contributed to both an FSA and an HSA together.  The FSA was configured as an "HDHP compatible" account, and was only valid for dental and optical until I met my deductible.  Upon proof of meeting that deductible (this was not done for me, there was a form and I literally had to fax over all my insurance statements) the FSA could be opened up for all medical spending, like normal.

This arrangement was complex, but allowed me to max my HSA and keep it invested while still getting some relief on medical costs.  Besides the limit on types of spending, there is also a lower limit on contributions to the FSA--not sure if that is because of the HDHP arrangement, or some other health law change.

So, I think they are blowing smoke about not contributing to both, but there may be some paperwork / configuration to the FSA to continue to hold it.  Or perhaps your custodian does not have this option.  Was it the custodian who told you that you could not contribute to both, or the plan admin or HR or someone?  I would make sure to get as close to the source as possible:  the custodian who holds your FSA.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4578
  • Age: 34
  • Location: Seattle, WA
Re: Mid Year Conversion from FSA to HSA (HDHP) Plan
« Reply #2 on: December 20, 2018, 03:05:36 PM »
It sounds like your FSA expired in September, correct? You had money in there and then they closed it in September?

A general-purpose FSA is typically disqualifying for HSA contributions, however if you're no longer covered by one as of the end of September I'd think you would then be eligible for HSA contributions for the last three months of the year. Furthermore, HSAs have a "last month rule" where if you're eligible for HSA contributions for the month of December you can make a full-sized HSA contribution as long as you remain HSA-eligible for the entire next year.

MDM

  • Walrus Stache
  • *******
  • Posts: 8842
Re: Mid Year Conversion from FSA to HSA (HDHP) Plan
« Reply #3 on: December 22, 2018, 08:31:19 PM »
If not only your FSA, but your wife's FSA as well, ended its plan year in September with a $0 balance, and you are now covered only by the HDHP, you are eligible for the HSA.  You are deemed to be covered by your wife's FSA if she has funded even $1 into the plan year that started 1-Oct-2018.

See
HSA and FSA In The Same Year
Internal Revenue Bulletin: 2004-45
https://www.irs.gov/pub/irs-pdf/p969.pdf

shguy

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: Mid Year Conversion from FSA to HSA (HDHP) Plan
« Reply #4 on: January 08, 2019, 02:49:03 PM »
Sorry everyone, thank you for your help. I got caught up with the Holidays and forgot to respond.

I tried to give a high level post and think I didn't communicate well.

@seattlecyclone you were correct about the general FSA expiring in September. I purposely used all monies in that account before I converted. I did not clarify that the rest of these funds were actually in an employer HRA account where we are provided money for Healthy lifestyle (working out, logging food, taking steps, sleeping, etc).

To update I have been given access to an HSA using the last month rule stated by @seattlecyclone and I have had my existing 2018 HRA money reinstated which can only be used once my deductible is met in the future before it can be dispersed. I was able to give myself a good buffer by maxing out that account in 2018 for 2019 and hope that all was done correctly so the IRS doesn't try to squash me down the road.